Business

Frontier unveils ultra-low-cost fare strategy, carry-on pricing

Denver-based Frontier Airlines will expand service this summer to several off-the-beaten-path cities. (Hyoung Chang, The Denver Post)

David Siegel, CEO of Frontier Airlines. (Jamie Cotten, Special to The Denver Post)

Frontier Airlines flips the switch Monday on its long-awaited new identity that — love it or hate it — will change the way its customers think about air travel.

The Denver-based carrier has unveiled a stripped-down cost structure for its fares, a permanent plunge in the average price of an economy ticket, and a marketing campaign designed to retrain the public's understanding of how Frontier operates.

Industry speculation and consumer questions have swirled around the airline since before Indigo Partners LLC purchased the carrier from Republic Airways Holdings in December.

But starting Monday, Frontier is making itself more clear by offering just two fare levels — economy and classic plus — and a plan to "unbundle" the cost of the economy-level tickets.

"We are basically reducing the fare and then will charge for everything else the customer may want a la carte," said Frontier CEO David Siegel.

But, he added, "we are putting our money where our mouth is."

Customers will now find a 12 percent average reduction in all of its nonstop economy tickets from Denver International Airport, which puts Frontier's prices about 18 percent lower than its DIA rival, Southwest Airlines.

Passengers who prefer the all-inclusive airfare can still book seats on Frontier that bypass any concern over add-on fees with its classic-plus fare bracket.

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For the last two years, Frontier gradually peeled away amenities previously included in the price of a ticket. This has foreshadowed its future as an ultra-low-cost carrier but perturbed many customers in a cloud of policy confusion.

"Those were the Dark Ages, this is the Renaissance," Siegel said. "We started pursuing the ULCC model 2½ years ago, but we had an owner that didn't really understand the model and didn't want to make any investments. Now we have Indigo ... they understand the model better than anyone else in the industry, and they are willing to make smart investments."

Indigo managing partner William Franke
is considered a wizard of the burgeoning ultra-low-cost carrier model that is well entrenched in Europe and growing in the U.S., led by carriers such as Spirit Airlines and Allegiant Air.

Skeptics have questioned how Frontier is going to be successful as a ULCC because the airline's defining characteristics — such as its geographic concentration in Denver and its hub-and-spoke approach to routing — seem contradictory to the conventional wisdom about ULCCs.

"We say Spirit is the dollar store and they aspire to be Walmart. We say we are Target, offering really good value for your money," Siegel said.

The back-end economics may be the same, but its leadership hopes the front-end customer experience is different.

"(Indigo) is looking to evolve the model. They certainly would like Spirit-like costs, Spirit-like profitability and Spirit-like financial returns, but they want a different customer experience," Siegel said.

Frontier launches a media campaign Monday to educate the Denver audience about the changes.

The primary differences in the new model will be in the carry-on bag fees and the creation of its new "Discount Den" club — free for the first year — that gives members reduced bag fees by about $5.

Frontier is undercutting Spirit across the board in its new fees while also offering what it believes is a nicer aircraft with more comfortable seats and better customer service.

"High customer service — what is that exactly?" says Jay Sorensen, an airline analyst who regularly publishes research on carriers' a la carte fees. "Does it mean clean aircraft, attentive employees, on-time departures, clearly defined policies and pricing, and being responsive when things go awry? Well, I'd say that's all possible. ... If an airline delivers on the basics, then I think a good service reputation should follow."

Siegel and his team recognize that they have some work to do in getting the public on board with this idea, but are passionate about Frontier's new approach, adamant that it is a great value.

Siegel hopes Frontier's marketing campaign drives home the idea that customers save the most when they pay upfront at the time of fare purchase. And for those who don't, the airline wants to lessen the sticker shock as much as possible by making the fees more "reasonable" than other carriers, Siegel said.

"We are going to be even more clear on how to fly on us, on how to save the most money," Siegel said. "We are trying to change behavior without being punitive."

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